Will embattled AIG ever repay the government?

By Andrew Barile

Andrew Barile Consulting Corporation

In an effort to quell congressional criticism, Edward Liddy, the CEO of American International Group (AIG), has tried to provide a glimpse into AIG's insurance future. Recognizing the volatility of earnings forecasts for insurance companies, this is a stretch, since insurance underwriting cycles have existed for many, many years, and projecting upturns in price has always been problematic.

Media outlets such as CNBC, Fox Business News and Bloomberg News are finally putting together that Hank Paulson orchestrated the entire show and made the decision to pay claims at par, knowing that it would be a simple, yet effectively hidden manner of recapitalizing Wall Street (and the bank clients of Goldman Sachs) for the future.

Remember, we were told that there were four attendees at the meeting to decide AIG's ultimate future: Henry Paulson, Lloyd Blankfein (CEO of Goldman Sachs), Ben Bernanke and Timothy Geithner, who says the Feds made us do it, so pay 100 percent on the dollar claim by AIG to Goldman Sachs clients. The government bailout permits AIG to borrow up to $60 billion under the credit line and another $30 billion under the government's Troubled Asset Relief Program (TARP). All of Goldman Sachs' bank clients would be made whole under the AIG insurance policies -- a perfect orchestration by Henry Paulson.

AIG is also offering its government partner a participation in its overseas life insurance operations, worth $26 billion. Other potential AIG asset sales include the company's:
  • Life insurance business in Taiwan (sell Nan Shan Life Insurance Company [$2.64 billion book value])

  • Asset management business
In conclusion, while these efforts to help AIG salvage its business have saved the company from the currently unstable economic environment, new directors with insurance industry experience would also be a welcomed addition.

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